First-step analysis: fintech regulation in Liechtenstein

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Financial regulation

Regulatory bodies

Which bodies regulate the provision of fintech products and services?

The Financial Market Authority (FMA) is the supervisory authority in the fintech sector, as well as the Liechtenstein financial market in general. The FMA has an entire department solely dedicated to the fielding of fintech-related inquiries.

Regulated activities

Which activities trigger a licensing requirement in your jurisdiction?

As Liechtenstein is a member of the EEA, general EU regulations and directives apply (with an EEA Joint Committee decision required). All banking activities (deposit and loan business), as well as investment services pursuant to Annex I of Markets in Financial Instruments Directive II are regulated. In addition, payment services pursuant to the Payment Services Directive (2015/2366/EC) (PSD2) and the E-money Directive (2009/110/EC) are regulated. This represents an advantage for start-ups based in Liechtenstein that benefit from the EU passport, a system allowing providers of financial services already licensed in the EEA to offer their services in other EEA countries (and, thus, including the EU) without additional approval requirements.

Since 1 January 2020, legal and natural persons with headquarters (registered office) or a place of residence in Liechtenstein who wish to professionally act as trustworthy technologies service providers (TT service providers) must apply to be entered into the TT Service Provider Register in writing with the FMA before beginning their activity. This also applies to token issuers that issue tokens in their own name or in the name of a client in a non-professional capacity if tokens in the amount of 5 million Swiss francs or more are issued within a 12-month period. 

On 24 September 2020, the European Commission adopted a new Digital Finance Package, including legislative proposals for a Regulation on Markets in crypto-assets (MiCa) as well as a Regulation for a Pilot-Regime for DLT based Market Infrastructures.

Several regulatory approaches of the Liechtenstein Blockchain Act are also included in the MiCa draft. Therefore, the Blockchain Act can be seen as a valuable template. Nevertheless, MiCa will affect the Blockchain Act directly and will have to be amended accordingly. However, for countries such as Liechtenstein, where regulations already exist for certain crypto-services, there will be ‘simplified authorisation procedures’.

Consumer lending

Is consumer lending regulated in your jurisdiction?

Regulation of consumer lending depends on the concrete business model. Taking deposits (in legal tender) and lending this money to others (deposit and lending business) are considered to be banking activities, which are both reserved to licensed banking institutions. If loans are given in the form of tokens (which neither represent e-money nor financial instruments) then the Banking Act is not applicable, as it deals with legal tender (fiat) only. 

However, a platform that distributes staking rewards would need to be assessed in more detail, as it may be not clear if the staking rewards embody a membership right similar to a share or another property right comparable to, for example, debt securities.

Secondary market loan trading

Are there restrictions on trading loans in the secondary market in your jurisdiction?

If obligations from a debtor to a creditor are purchased (eg, if the retailer’s receivables are purchased by a company) and the risk of insolvency (eg, of the customer as debtor) is assumed by the buyer upon conclusion of the assignment agreement (credit risk function), there is no requirement for special financial licences. The retailer may retain the assignment price paid for the purchased receivables without the possibility of a redemption. The retailer is only liable for the legal existence of its assigned customer claim.

However, if loans (in the sense of a lending business) are traded (ie, a new creditor is entering the agreement), then this will likely constitute a banking business. This must be differentiated on a case-by-case basis.

Collective investment schemes

Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.

The Liechtenstein Collective Investment Scheme Regulation is mainly based on the Undertakings for the Collective Investment in Transferable Securities (UCITS) Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) and is therefore harmonised within the European Union and the EEA.

An ‘alternative investment fund’ (AIF) is broadly defined as an undertaking collecting capital to invest it pursuant to a defined investment strategy on behalf of the investors.

A ‘UCITS’ refers to an undertaking that raises capital from the public and invests this capital collectively in specific transferable securities on the principle of risk spreading.

For a business model to qualify as an alternative investment fund, there must be no engagement in industrial or general commercial activity, it must pool investors’ capital for the purpose of generating a collective return in line with a predefined investment strategy, and investors must not have ongoing discretionary and control powers.

Purchasers in an alternative investment fund do not individually directly own the underlying assets, but their ownership of the assets is represented by units in the collective undertaking.

Alternative investment funds

Are managers of alternative investment funds regulated?

As a general comment, one can differentiate between funds that have crypto as an underlying factor and the tokenisation of fund stakes.

Since a fund pursuant to the UCITS Directive may invest only in specific types of financial product, a crypto investment fund is not feasible and only the shares of the fund may be tokenised. In that sense, a crypto investment fund can only be achieved under the AIFMD, as this is primarily a fund-manager regulation, rather than an investment-fund regulation. An AIF mainly targets professional investors.

Hence, a fund pursuant to the AIFMD may invest in a crypto-portfolio and its shares may be tokenised. A central aspect of an AIF is the pooling of capital or assets. These criteria must be broadly construed to mean any assets. Thus, a fund may hold yachts in its portfolio or other commodities, such as tokens.

Peer-to-peer and marketplace lending

Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.

No specific regulation applies to peer-to-peer lending. EU legislation applies and it should be analysed if banking business is conducted.

Crowdfunding

Describe any specific regulation of crowdfunding in your jurisdiction.

On 10 November 2020, the Regulation on European Crowdfunding Service Providers (ECSP) for business entered into force. After a transition period of 12 months, the rules will enter into application on 10 November 2021, applying directly across the EU. The initiative was part of the European Commission’s fintech action plan and the mid-term review of the capital markets union action plan. The Regulation will affect Liechtenstein jurisprudence owing to the country’s harmonisation with the European Union as an EEA member state. At pre
sent, an initial coin offering (ICO) or a token generation event may be regulated in Liechtenstein if security tokens are being issued. In general, there is no singular act specific to ICOs that regulates crowdfunding, but several laws may apply.

Moreover, the Blockchain Act directly applies to token generating events, ICOs and security token offerings.

Invoice trading

Describe any specific regulation of invoice trading in your jurisdiction.

Factoring is not regulated as a financial market activity if the risk of insolvency is assumed by the buyer. Only a commercial business licence may be required from the Office of Economic Affairs. If a TT service is offered, a registration under the Blockchain Act is required. Depending on the use case, the registration under the Blockchain Act may supersede the requirement for a business licence. 

Payment services

Are payment services regulated in your jurisdiction?

The revised Liechtenstein Payment Service Act, which is based on PSD2, entered into force on 1 October 2019. The E-money Act, which is based on the EU E-money Directive, is also relevant to payment services.

For a variety of business models, the…

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